Investment Strategies Flashcards
7 cards from real CPA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Investment Strategies flashcards as text
Which fixed-income strategy seeks to minimize exposure to interest rate risk by matching asset duration to liability duration?
Answer: Immunization
Immunization matches the duration of assets to liabilities so that interest rate changes affect both sides equally, protecting the funding ratio.
In a barbell bond strategy, an investor allocates capital to:
Answer: Short- and long-duration bonds with nothing in between
A barbell strategy concentrates holdings at short and long maturities, combining liquidity with higher yield while avoiding intermediate terms.
Which of the following is a characteristic of an efficient market, according to the Efficient Market Hypothesis (EMH)?
Answer: Current prices fully reflect all available information
The EMH states that asset prices fully and instantly reflect all available information, making consistent abnormal returns impossible.
An investor holds a long position in crude oil futures to profit from anticipated price increases. This is an example of:
Answer: Speculation taking on price risk for potential gain
Speculation involves deliberately accepting price risk in futures without an offsetting physical commodity position, aiming to profit from price movements.
A CPA client asks about investing in REITs. Which tax feature is most relevant?
Answer: REITs must distribute at least 90% of taxable income as dividends
To qualify as a REIT, a company must distribute at least 90% of its taxable income to shareholders annually, enabling pass-through tax treatment.
Which investment metric indicates how much return a portfolio generates per unit of systematic risk taken?
Answer: Treynor ratio
The Treynor ratio = (Portfolio Return − Risk-Free Rate) / Beta, measuring excess return per unit of systematic (market) risk.
Which of the following best describes 'sector rotation' as an investment strategy?
Answer: Shifting capital between economic sectors based on business cycle phases
Sector rotation moves capital into sectors expected to outperform during specific phases of the economic cycle (e.g., defensive sectors during recessions).